Ashburn

How to overcome price resistance and make a profit

March 1, 2010

If a technician finds two or three items that need work, economies of scale come into effect.

By Mike Hajduk

Like any good businesspeople, most pool and spa service providers try to do everything right. They hire service people with a good aptitude and attitude and give them distributor- and manufacturer-sponsored training. They promote their companies to the local community and make considerable investments in various marketing initiatives. Having put their best foot forward, a customer calls to make a service appointment—perhaps something as simple as weekly maintenance or a minor repair. However, after taking the job, doing the work and collecting the fee, the income statement shows the company has actually lost money. What went wrong?

This scenario, while frustrating, is not unusual. In fact, it has even prompted some influential and sizable pool companies to cut back on their service departments, or in some cases, eliminate them altogether. Some construction companies have even resorted to farming out service to a subcontractor, who takes over the account once the pool is out of warranty.

The price is wrong

When contractors farm out service in this way, the underlying message is they don’t know how to charge enough to make money in pool and spa service. As it is, many contractors don’t charge enough to break even, so it’s no surprise they want to pass the business along to someone else.

It’s not unusual for a service company to incur a break-even per hour cost of $75 to 85 per hour or higher. Why, then, do so many service companies charge less than that for service? Most contractors say customers are already hesitant to pay the prices the company currently charges. As such, increasing prices might serve to alienate their current customer base.

If customers are already complaining about a service rate below the break-even point, it’s natural for companies to want to shed a loss-generating department and let someone else worry about the customer. Many pool professionals also feel if a customer has already paid $48,000 for a new pool, there’s no need to risk losing money on them.

It sounds logical, but it is likely not the best long-term strategy for the company. The answer is not to shed service, but rather to charge enough to make a profit. The best way to accomplish this is to establish a flat-rate pricing system for service rates. By doing this, the focus is shifted away from an intimidating ‘per minute’ rate to the quality of work the company is providing.

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